For a small-scale corn farmer driven out of business in Mexico
by the North American Free Trade Agreement (NAFTA), the fancy
economic theories about the benefits of “free trade” might not seem
too believable.
As the theory of comparative advantage goes, we’re all richer
when we concentrate on what we do best and then trade. After all,
it’s the world’s richest populations that operate with a high level
of specialization and trade, while the world’s poorest people are
the most self-sufficient, growing their own food, making their own
soap and clothes.
As Adam Smith maintained in The Wealth of Nations, what
works best to expand overall output in an economy is a division of
labor, i.e., specialization.
We’re better off in both Florida and here in Pittsburgh, for
instance, if Florida produces the oranges and we make the steel,
and then trade. For us, it’s cheaper to get oranges through trade
than producing our own in local greenhouses, especially in
January.
That worked fine until it became cheaper to get steel from
Brazil and Russia, and more recently from China’s heavily
subsidized factories (steel imports from China in the U.S. reached
5.4 million tons last year, more than double the 2.1 million tons
imported from China in 2005), cutting the population in Pittsburgh
and our subsequent demand for oranges.
Compared to the 1950s — back when steel was booming in
Pittsburgh and the Chinese were specializing in those little paper
fans that our local amusement park gave away as prizes when you
pulled the right duck out of the water — the population of
Pittsburgh in the city proper has been cut in half, so we’re not
exactly a growth market for Tropicana.
Still, it’ll all work out if the Chinese can be convinced to eat
more American oranges, or so long as they continue to finance our
federal debt at rates we can afford, lending us back the money we
spent for steel and spent at Wal-Mart for all those blinking
Chinese reindeer at Christmas.
With Mexico, the tariff-cutting provisions of NAFTA were
supposed to make Mexicans richer, and us richer. We’d get cheaper
products and lose some jobs, but with cheaper imports we’d have
more money left in our pockets to spend and create more jobs.
There’d just have to be some labor mobility, some flexibility and
retraining.
NAFTA’s strategy for labor mobility in Mexico called for the
nation’s unemployed and underemployed masses to migrate for work in
the maquila factories along the U.S.-Mexican border, assembling,
for instance, duty-free imported parts and materials from the U.S.
and then exporting the assembled products back to the U.S.,
tariff-free.
As a bonus, the predicted increase in jobs and prosperity in
Mexico under NAFTA was expected to reduce illegal immigration. In
1994, the year NAFTA was put into effect, Attorney General Janet
Reno predicted that illegal immigration would fall by two-thirds
within six years. “NAFTA is our best hope for reducing illegal
immigration in the long haul,” she declared. “If it fails,
effective immigration control will become impossible.”
Initially, things worked fine, just as planned. Mexican
employment expanded in the low-wage maquila districts, the
country’s export platforms — until the jobs began leaving for
China, where factory wages were only one-fourth as high as
Mexico’s.
Today, after 13 years of “free trade” under NAFTA, real wages in
Mexico’s manufacturing sector are lower than before the agreement
and more than a third of Mexico’s farm jobs have disappeared,
sending millions of rural laborers and bankrupt small-scale farmers
into Mexico’s cities and across the border into the United
States.
Just as cheap labor costs in China undermined the
competitiveness of Mexico’s manufacturing sector, the export to
Mexico of low-priced and government-subsidized farm products from
the U.S. has wiped out large segments of Mexican agriculture.
Small-scale Mexican corn farmers simply can’t compete with highly
subsidized corn from the U.S. that’s being dumped in their markets
under “free trade” policies at artificially low prices.
“Because of NAFTA, U.S. farms are flooding the Mexican market
with cheap varieties of corn,” reports NPR correspondent Lourdes
Garcia-Navarro. “U.S. farmers, benefiting from government
subsidies, make it almost impossible for Mexican farmers to
compete.”
Still, we’re getting better-than-ever bargains on those
white-wire reindeer at Wal-Mart, except it’s China that’s getting
the money. And the Chinese just conducted a satellite-killing
missile test, successfully, on Jan. 12. In theory, it’s all okay,
i.e., economically efficient, unless they nuke us.
